4 Industry Groups Beating the S&P 500

Relative performance and volume analysis confirms these four industry
groups are outperforming the market, writes Tom Aspray,
identifying stocks from each that may soon set up as good buys.

The importance of watching for sector rotation was reinforced in 2011 when
many of the key sectors saw double-digit gains and losses from one quarter to
another. This is reflected on the on the performance table below.

Those who started the year long the energy sector did well, as it was up
16.8% in the first quarter. However, those who held on until the end of the
third quarter (and ignored the early-May
sell signal) were down 11%. Those who bought and held the Select
Sector SPDR - Materials (XLB)
ended up losing 12.8% for the year despite a fourth-quarter gain of over 17%.

The only steady performer was the Select Sector SPDR -
Utilities (XLU),
which had an impressive gain of 14.8%. This performance data needs to be
compared to a benchmark like the S&P 500, of course, which was unchanged for
the year.

Click to Enlarge

Since the market is currently in a corrective mode, sector or industry group
selection is likely to be a very important factor in putting together a buy list
for when the current market decline is over.

Even though the Spyder Trust (SPY)
is down 6% from its April highs, it is still up 12.2% for the year. This is well
below the 21.5% gain in the Select Sector SPDR - Financial (XLF),
however, and the 18.5% gain in the Select Sector SPDR -
Technology (XLK).

Of course, once the strong sectors have been selected, finding the best
industry groups within that sector(s) can give you an added edge. I find that
the relative performance, or RS
analysis, is the best starting point in this analytical process.

RS analysis compares the performance of a sector, industry group, or stock to
a benchmark like the S&P 500. The on-balance
volume (OBV) also plays an important role in identifying those industry
groups and stocks that are being accumulated.

One industry group that has been a star performer since last October has been
the residential construction, or homebuilding group. The SPDR S&P
Homebuilders ETF (XHB)
is up 24.8% so far in 2012, and some of the individual stocks in the group, like
PulteGroup Inc. (PHM),
are up over 40%. (For the latest appraisal of the homebuilders, see "New
Warning Signs Hit Homebuilders.")

In this article, I will focus on four industry groups that are currently
outperforming the S&P 500. For each group, I have also selected a particular
stock that is outperforming the market.